Some people have wondered how hog producers are surviving on cash market prices.
American hog industry banker Mark Greenwood has a simple explanation: They aren’t.
“Contracts pay more than the spot market,” Greenwood told the Manitoba Pork Council’s annual meeting.
“If you’re going to go on the spot market, you’re going to get significantly less revenue without some kind of an agreement.”
Greenwood, a vice-president with AgStar Financial Services in Mankato, Minnesota, said only 17 percent of U.S. hog sales were done in the cash market in 2001, compared to 62 percent in 1994. In 2001, 54 percent of hogs were sold under formula pricing, with another 29 percent by other forms of contracting.
Contracted prices are a good form of risk management, Greenwood said, and they are also higher on average by about $4 US per hundredweight than the spot market.
Greenwood said cash hog prices may disappear and he’s not sure what will replace them.
Most contracts are still based on the cash market for hogs, so they may have to change their basis to wholesale pork cutout values, he said.
